'Kickout' Provision Didn't Require Specific Date of Termination from Tenant

Facts: A retail tenant’s shopping center lease included a “kickout” provision, allowing it to terminate the lease if its annual gross sales during the fifth year of the lease term didn’t exceed $3.5 million. To terminate the lease, the tenant was required to give the owner a written notice of termination within 120 days following the end of the fifth year of the term. If the tenant failed to deliver the notice according to that specification, it would lose its termination right. In an agreement made after the lease was signed, the tenant and owner agreed that the kickout notification had to be given between June 1, 2008, and Oct. 28, 2008.

The tenant’s fifth-year gross sales were below $3.5 million. It provided written notice before Oct. 28, 2008, that it wanted to terminate the lease. But a dispute arose between the owner and tenant about whether the language in the kickout provision required the tenant to also provide the owner with a specific date when the lease would terminate. The owner sued the tenant, claiming that because the tenant hadn’t specified the date on which it wanted to move out, the termination was ineffective and the tenant would have to stay in the space for the rest of the lease term.

Decision: An Arizona court ruled in favor of the tenant.

Reasoning: The court interpreted the language of the kickout provision to require that a notice of termination be provided before Oct. 28, 2008, and that the lease would continue for a window of at least 120 days but not more than 270 days after giving such notice. But the language of the kickout provision didn’t require that the tenant include a specific date of termination within that time frame, said the court.

The court noted that when the lease was reviewed as a whole, it was clear that the language should be interpreted in the tenant’s favor. That was because a separate provision in the lease that was similar to the kickout provision—but applied to a different circumstance under which the tenant could terminate the lease—required notice of termination within a certain time period but also expressly required that the notice of termination in that situation must set forth a specific date. Unlike that provision, however, the kickout provision did not specifically require that an actual date of termination must be set forth in the notice. Therefore, the court determined that if the kickout provision intended to require that the kickout notice of termination include a specific date of termination, it would have stated that requirement, as it did in the other, similar provision.

Further, the tenant strictly complied with the kickout provision—it gave notice before Oct. 28, 2008, of its intent to terminate under the kickout provision, and continued its obligations for an appropriate period of time from the date the notice was received by the owner, said the court.

• Plaza 75 Shopping Center, LLC v. Big Lots Stores Inc., June 2012